Indiscriminately clamping down on public-sector ‘tax avoidance’ may damage the ability of organisations to attract key skills to help them through important transitions. Legitimate interim executives operate on the basis on successive assignments delivering sought-after and senior level skills to organisations on a project basis.
Government research suggests that more than 2,000 public-sector workers could be avoiding the full rate of income tax through off-payroll contracts. Apparently, 40 per cent of those have been in their roles for more than two years.
These 2,000 individuals are likely to fall into two categories:
- Legitimate interim executives/managers and contractors; and
- “Disguised” employees
Legitimate interim executives/managers and contractors
The Institute of Interim Management (IIM) estimates there to be approximately 6,000 trading interim managers and executives in the UK, providing specialist services to private and public sector organisations.
Interim managers bring valuable skills and expertise to bear at short notice, typically at a board or senior level. They implement complex solutions including change, transformation and turnaround management, business improvement, crisis management and strategy development. They consult, plan, advise, implement, and embed the improvements, then leave. The average interim assignment lasts just over 7 months.
Of the 2,000 workers identified in this study, the IIM expects that some will be legitimate interim professionals who bear the risks of self-employment without bonuses, benefits or employment rights. They pay their taxes like any small business and, as such, they pay their way fairly and equitably. After an average of seven months, they are off assignment, not earning and looking for their next assignment.
It is apparent that some people are carrying out established positions in the public sector, but operating ‘off-payroll’. This appears to be the case with the chief executive of the Student Loans Company, Ed Lester, which started the current alarm. Mr Lester originally operated as an interim manager for an eight month period. When his role was extended by two years, he did not transfer to employee status and the extension was paid via his Limited Company.
The IIM has no issues with Mr Lester, who is said by Vince Cable to be "an exceptionally useful individual who has helped to turn round that organisation [the Student Loans Company]". We can however understand that a longer contract than 8-12 months may imply the individual concerned is no longer functioning as an independent (Limited Company) interim professional moving from assignment to assignment. For individuals in post for more than 12 months, we can see that discussing a move to a permanent payroll may have ethical, practical and indeed political value, subject to the nature of the work.
Towards a more effective public sector … and a fair deal for (legitimate) interim managers
As a rule, public sector board members and senior officers with significant responsibility should be on the organisation’s payroll. There are genuine exceptions, when a crisis or change situation requires a senior interim executive to implement change that cannot otherwise be done, they should join as an independent practitioner, for a fixed time-period.
An automatic six month cut-off, however, may be too short for such executives to make a key difference and then hand-over to a permanent successor. It ties the interim professional’s hands and threatens the success of the much needed public-sector improvement activity. A 12 month review trigger is more fitting. After that time, an employment discussion, if the person decides to stay, can be undertaken.
Professional interim managers meet their tax obligations as responsible small business owners. Managing a small business and paying appropriate business taxes, is not and should not be seen to be a crime. Forcing them to be ‘employed’ on the public sector payroll for 6-12 months, along with all the costly administration, benefits, pension and employment rights that entails would be a fool’s errand.
It is essential that both immediate remedial measures and, following consultation, detailed arrangements should be very carefully drawn so that they rightly capture instances of abuse without depriving the economy of much needed flexibility and innovation that interim managers and executives provide, solving significant public-sector challenges.
Ad van der Rest, co-Chairman, The Institute of Interim Managers